How To Invest Like A Professional

Here are five smart moves you should take today:

1. Keep it simple and profitable: Use no load, low cost, index funds for your plan’s core mix of investments.
2. Set up self-directed accounts for employees (participants) who think they can pick managed funds and/or asset-allocation, target-date, lifecycle, lifestyle, and balanced funds that will beat a core mix of index funds in performance. Warning to employees: If you have never picked managed funds that beat index funds in performance–long term–what makes you think you can do it going forward?
3. Consider the possibility that you are paying more than you should for services such as recordkeeping and administration, consulting, and investment advice. For instance, what does added value really mean? The bottom line is how much money YOU earn on your investments after you pay for everything. That is why it makes sense to compare your ROI (Return on Investment) to an appropriate benchmark.
4. If you pay for an asset-allocation and re-balancing program, stop it. Instead, use the classic asset-allocation and re-balancing model and set it up on auto-pilot. It is free and it works as well as the most sophisticated asset-allocation and re-balancing programs.
5. Stop wasting your money. Yes, you can save at least ten percent of all you earn. Savers have a mind-set that makes it hard to let go of their money; they study ways to cut their living expenses. Spenders have a mind-set that makes it hard to hold onto their money. Before you make a purchase, you should ask this question: Whose plan do I want to contribute my hard-earned money to? Can you feel the pain of throwing your money away? Can you feel the joy of looking at your statement and seeing more money in your 401(k) or 403(b) plan than you thought was possible for you to save?

Fall in love with cutting costs and improving investment performance, not with service providers who you may think are the best, brightest, and most popular.

Best wishes,

Your teacher, Frank Cirullo

Student: “Is it really that easy to improve my retirement plan?”

Frank Cirullo: “Yes.”

Student: “Can you show me how?”

Frank Cirullo: “Yes.”

Student: “What should I do?”

Frank Cirullo: “First, do you really want to know the facts about your plan? For instance, your mix of managed investments have underperformed a diversified mix of no load, low cost, index funds, and your retirement plan costs more than it should.  If you trust facts instead of opinions, you will see how to improve your plan. By the way, how much money will it cost you, long term, not to improve your retirement plan, today?”

Best wishes,

Your teacher, Frank Cirullo

For a moment, pretend that you and an old friend and associate are discussing retirement and retirement plans. 

You say: “I think the real question is not where we will find time to improve our plan, rather, it’s how much is it going to cost us and the participants (employees) if we don’t cut our plan’s cost, today, right now.” 

Your associate says: ”I know. I read that it’s more likely than not that our retirement plan is probably more expensive than it should be.  And whose money is being wasted?  Mostly, it’s the participants’ (employees’) money, but our money is being wasted, too. I, too, agree that we should improve our plan, so let’s cut its unnecessary costs, today.”

Okay, you can stop laughing.  Let’s get back to the real world. 

I would like to communicate something important to you. Do I have your permission?

If not, please stop reading now.

Well, the truth is this. The conversation you just read probably never takes place at any for profit business or not-for-profit organization. Why? It is because most employers don’t think it is urgent to cut their retirement plan’s cost.  Instead, most employers give themselves reasons to delay improving their plan. 

By the way, if you are an employee, your employer has time to do whatever he or she wants to do, so even though it is true that he or she is busy, don’t worry about him or her not having time to improve your 401(k) or 403(b) plan.  In fact, it is his or her fiduciary duty to cut your plan’s cost now, not next week, next month, or next year when he she may have more time. 

A fiduciary (employer) must always act in the particpants’ best interests.  And procrastinating on cutting unnecessary costs, for even one week, is guaranteed to cost participants more money than you and your employer can imagine–long term!

What employers don’t have time for is the consequences of not doing anything to cut unnecessary costs.  An employer is expected to know better than to have a plan that is loaded with fat (high costs) and ignorance is probably not a defense that he or she can win with in a court of law.

You can do yourself and your employer a favor by asking your employer to visit http://fcmstudents.com/wordpress/ (that’s the Web site you are on now) so that he or she can learn how to improve your 401(k) or 403(b) plan, free. 

I always welcome your comments, because I hope they will help others do the right thing with their 401(k) or 403(b) plan.

Best wishes,

Your teacher, Frank Cirullo

A few months ago I published an article, “Cut 401(k) Expenses So That You Keep More of YOUR Money.”  In my article, in cost cutting Ideas #3 and #5, I exposed the fatal flaw that every asset-allocation calculator has. 

Cost Cutting Idea #3 - Beware the high cost of “free.”

Watch out for the myriad of bells and whistles that vendors provide “free.” If you look just below the surface you will quickly see that “free” comes with a considerable cost!

For example, financial calculators will waste your time and not provide any real value at all. The reason is simple. First, they cannot predict which asset-classes will outperform going forward. Second, they cannot predict how much you will earn on your investments. They simply can’t predict the future!

But take heart, because you can do a great job of planning your own investments without using financial calculators and without using the financial planning software that may only confuse you more.

Always keep it simple.

Cost Cutting Idea #5 - Stop trying to beat the market.

Let me ask you this. Can you hit a moving target blindfolded?

Here is what I’m talking about. Many people are trying to beat the market (hit a moving target) blindfolded. They are blindfolded because no one can predict which asset classes will outperform the others going forward. They are just guessing where the target is. That’s why they miss the mark.

Instead, why not invest in a diversified mix of low cost index funds so that you can match the market’s performance? That way you’ll have more money for retirement and beat the picks of most experts.

Did you know it’s a myth that you can predict the future by studying past performance?

No one has ever done it!

In my article, I revealed the truth about asset-allocation calculators so that poeple would stop wasting their time and money on foolish software and programs that try to predict the future. 

Tomorrow, I will show you how to use the classic asset-allocation model.  It can’t predict the future either, but it is fast, free, and it works as well as the most sophisticated asset-allocation programs.

Best wishes,

Your teacher, Frank Cirullo

So far you have learned how to compare expense ratios, choose a large-cap fund, mid-cap fund, small-cap fund, foreign fund, money market mutual fund, short-term bond fund, and an intermediate-term bond fund.

Today, your assignment is choose a long-term index fund.  Please use the same process that I taught you and choose a long-term index fund.  Easy!

Isn’t life great when people treat you right?  Really, don’t you love going back for more information that you can profit from

If you have been doing the required work, then after today you will have your own diversified, core, mix of no load, low cost index funds, which is guaranteed to match the market’s performance less the cost of your funds.  And it only required a few minutes of your time, each day.

By matching the market’s performance, your mutual fund picks will beat the pants off the mutual fund picks of most experts–long term. 

Best wishes,

You teacher, Frank Cirullo

You may be thinking, “Who is this guy that is giving us this wonderful and profitable information, free?”

Well, if you are curious and want to know who I am, you can use your favorite search engine to find out. 

Google Frank Cirullo at http://www.google.com/.  Or Yahoo Frank Cirullo at http://www.yahoo.com/, Or MSN Frank Cirullo at http://www.msn.com/.  Just type Frank Cirullo in the search box.  Easy!

Best wishes,

Frank Cirullo

My goal is to teach my students how to choose a diversified, core, mix of no load, low cost index funds for their IRA account, 401(k) plan, or 403(b) plan. 

However, I want you to only invest a few minutes of your time, each day.  Why?  This process is new for you; therefore, it makes sense to slow down, take your time, and not be in a hurry.

By investing a few minutes of your time and choosing just one of the eight funds, per day, you will have a core mix of index funds–soon.  Easy!

During the first four days, you learned how to choose a mix of equity mutual funds for growth so that you can protect yourself from inflation.  Now you are learning how to choose fixed income mutual funds for income and balance.

IMPORTANT NOTE: You need to know something important about fixed income mutual funds that many people don’t realize when they invest in them: I want you to imagine that you are at a city park and you are watching kids play on a teeter-totter.  However, on this day, I want you to get a picture of a cartoon in your mind.  Imagine that interest rates are represented by a “%” sign.  And imagine that bond prices are represented by a “$” sign.  Got it?  Okay, interest rates are on one side of the teeter-totter, and  bond prices are on the opposite side.  If interest rates fall, bond prices rise.  But if interest rates rise, bond prices fall.  See? 

Why is this information important?  Well, if you need your money to live on and you can’t risk losing any of your principal, please do not invest in equity funds and fixed income funds.  Instead, invest in T-Bills and short-term T-Notes.  Why?  T-Bills and T-Notes are the safest investments you can make.  The next safest investment is a FDIC insured Certificate of Deposit. Yes, I know that these financial instruments don’t pay very much in interest, but if you need your money and can’t lose any of your principal, then your goal is safety of principal–not growth.  I hope you understand this important rule, because it will prevent you from foolishly reaching for higher yields and losing some or all of your hard-earned money.

Tomorrow, you will choose the final fund that you need for a core mix of index funds for your IRA account, 401(k) plan, or 403(b) plan.

Best wishes,

Your teacher, Frank Cirullo

So far you have learned how to compare expense ratios, choose a large-cap fund, mid-cap fund, small-cap fund, foreign fund, money market mutual fund, and a short-term bond fund.

Today, your assignment is choose an intermediate-term index fund. Please use the same process that I taught you and choose an intermediate-term index fund.  Easy!

Isn’t life great when people treat you right? Really, don’t you love going back for more information that you can profit from?

Remember, if you do the work, you will have your own diversified portfolio in eight days–total. And it only requires a few minutes of your time, each day.

Just think about it. If you have been using my proven process to pick out a mix of index funds, after today you will have already picked out seven funds. Then, in only one more day you will have your own portfolio that is guaranteed to match the market’s performance less the cost of your funds.

By matching the market’s performance, your mutual fund picks will beat the pants off the mutual fund picks of most experts–long term. See?

Best wishes,

You teacher, Frank Cirullo

Before we begin today’s lesson, I want to remind you of this.  Congress said that most plans are more expensive than they should be.  Also, they said that most employers and employees don’t even know how much their plan costs them.  Please be nice to service providers (vendors), but be careful of who you hire.  Only hire a vendor who will optimize your plan according to the instructions YOU give to him or her. 

Many years ago I was working my way through college, and I had a barber who was really a cool guy.  He wasn’t good at cutting hair, but he was cheap, and at that point in my life I had to watch every penny. My barber was always busy–it turns out that other people must have thought he was cool, too. 

One day, while I was waiting my turn for a haircut, I saw something that I had not seen before: My barber asked each customer how they wanted him to cut their hair; then,  he would look them right in the eye and repeat what they told him to do–”Okay, you want me to take a little off here and there, but you want it longer here…got it!”  The only problem was this.  He cut every man’s hair in the very same style.  That’s right, his customers looked alike as they left his shop!  And, at that moment, I realized that after he cut my hair I would look like the rest of his customers–no matter how I asked him to cut my hair! Imagine getting a haircut; then, you notice that every woman is leaving the beauty shop with the same hairdo.   How would you feel about your new hairdo?

You may be thinking, “What the heck does that have to do my 401(k) or 403(b) plan?” 

Well, there are many  cool vendors (service providers) who know how to advertise and market, and they are highly trained salespeople, as well.  In fact, they know every one of your objections before you say one word.  Now, that would not be bad if they were acting in your best interests and set up a plan for you that is optimal.

Facts are facts: Not one vendor will  fire his or her  company for selling you a high cost plan that only appears to be low cost.  Nor will he or she refer you to a truly low cost service provider who can provide better service for a lower fee. 

My point is this.  If you really want a truly low cost plan, you will have to set it up yourself by giving the vendors instructions on what you want them to do.  But you should seek advice (from the vendors your hire) on the laws, rules, and regulations.  However, just remember that it would be a mistake to ask a vendor how to set up a truly low cost 401(k) or 403(b) plan.

This is the bottom line: Your plan is either optimal or it is not.  The word “optimal” means that it is truly low cost with a core mix of investments that match the market’s performance day-after-day, month-after-month, quarter-after-quarter, and year after year.  Easy! 

If you could sit in on some meetings with various service providers and employers, you would see and hear about the same thing at every meeting–no matter which company or who gave the sales presentation.  Just like my barber, who was good at acting like he listened to his customers, service providers will waste your precious time asking you many questions, but they will sell you whatever is profitable for them.  Remember, you must protect the employees (participants in the plan) at all times.

Lessons learned:

Lesson 1: If a service provider happens to be an insurance company ( No, I am not picking on insurance companies), then every plan they sell will look the same–no matter what the employer says he or she wants.  Ditto for brokerage firms, mutual fund companies, registered investment advisers, and financial planning firms.  No matter what the employer tells a service provider, he or she will come out of that meeting with a 401(k) or 403(b_plan that looks like all of the others that that vendor recommends. 

Lesson 2: Not one salesperson (vendor) who works for a brokerage firm, mutual fund company, registered investment adviser firm, financial planning firm, or insurance company has at least a ten-year track record of picking mutual funds that beat a diversified, core, mix of no load, low cost index funds in performance.  Yet, they may try to encourage you to make a costly mistake by picking a mix of managed funds and/or asset-allocation, target-date, lifecycle, lifestyle, and balanced funds from a large universe of 10,000 or more funds. Just think about it.  What they are really doing is encouraging you to experiment with the employees’ (participants’) retirement money.  Is that prudent?  No!  Instead, it’s prudent to give employees a diversified, core, mix of no load, low cost, index funds that will match the market’s performance.  Employees who think they can beat the market (index funds) can set up low cost self-directed accounts.  See?

Now do you see why it would be a mistake for you to ask the service providers to assist you in setting up a plan?  Always, ask for a track record of at least ten-years and watch out for cherry picked funds that the investment adviser did not pick for any 401k or 403b plan, back them.  And watch out for cherry picked time frames, too.

Lesson 3: Rather than ask service providers (salespeople who have inherent conflicts of interest) for advice on how to set up a 401lor 403b plan, it makes more sense to give vendors instructions as to what you want them to do for you.  For instance, you can pick up your telephone and say,  “Can you get me the following items?” 

1. A diversified, core, mix of no load, low cost index funds? Pay not more than 0.07% to 0.20%, per year.
2. Low cost self-directed accounts for employees who still believe they can beat index funds in performance.
3. Low cost recordkeeping and administration that is timely and accurate.  Pay not more than the benchmark, which is $25.00, per eligible employee, per year.  Remember, no hidden or camouflaged costs are allowed, because they create the illusion of a low cost plan and you may not catch it if you are not paying attention.

That’s how you set up a truly low cost plan with a core mix of investments that will at least match the market’s performance.

By the way, you can learn more about how to set up a 401(k) or 403(b) plan that is optimal (truly low cost), right here, free.

Best wishes,

Your teacher, Frank Cirullo

In my previous blog posts you learned how to compare expense ratios, how to choose a large-cap fund, mid-cap fund, and a small-cap fund.

Use the same process to choose a foreign index fund. Easy!

Isn’t life great when people treat you right?  Don’t you love going back for more information that you can profit from?

Remember, if you do the work, you will have your own diversified portfolio in eight days.  And it only requires a few minutes of your time, each day. 

Just think about it: If you have been using my proven process to pick out a mix of index funds, you have picked out four funds.  In four days you will have your own portfolio that is guaranteed to match the market’s performance less the cost of your funds.  By matching the market’s performance, your mutual fund picks will beat the pants off the mutual fund picks of most experts–long term.  See?

Best wishes,

You teacher, Frank Cirullo